2. All the debit entries are made in the left
column of ledger and
All the credit entries are made in the in the right
column of an account ledger.
The Debit Side of an account is the Left Side
(Left Column) of an account and the Credit Side
of an account is the Right Side (Right Column)
of an account.
2
3. DEBIT(Dr) AND CREDIT (Cr) ENTERIES
• TO DEBIT AN
ACCOUNT MEANS
TO ENTER A
TRANSACTION ON THE
“DEBIT SIDE” OF THAT
ACCOUNT OR
LEFT-HAND SIDE.
• TO CREDIT AN
ACCOUNT MEANS
TO ENTER A
TRANSACTION ON
THE “CREDIT SIDE”
OR
RIGHT-HAND SIDE.
3
4. Acquired an Asset
Disposed off an Asset
Lost an Asset
Added a liability
Liquidated a liability
Oops…!
Account holder driven changes.
4
5. Rules of Accounting
All accounts are divided into five cat for the
purpose of recording of the business
transactions:
Assets,
Liability,
Capital,
Expenses/ Losses,
Revenues/ Gains.
5
6. Two Fundamental Rules are followed to record the
changes in these accounts using Debit and Credit.
1. For recording changes in Assets/ Expenses/
Losses
“Increase in Asset is debited, and decrease in
Asset is credited.”
“Increase in Expenses/ Losses is debited, and
decrease in Expenses/ Losses is credited.”
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7. 2. For recording changes in Liabilities and Capital/
Revenue/ Gains
◦ “Increase in Liabilities is credited and decrease in
Liabilities is debited.”
◦ “Increase in Capital is credited and decrease in
Capital is debited.”
◦ “Increase in revenue/ gains is credited and decrease
in revenue/ gain is debited”.
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8. RULES OF DEBIT AND CREDIT
INCREASE DECREASE
ASSETS DEBIT CREDIT
LIABILITIES CREDIT DEBIT
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9. 9
How To Use and Apply Our Debit and Credit Rules:
(1) Determine the types of accounts the transactions affect-asset,
liability, revenue, or expense account.
(2) Determine if the transaction increases or decreases the
account's balance.
(3) Apply the debit and credit rules based on the type of
account and whether the balance of the account will increase
or decrease.
11. Analysis of Transaction
In this transaction, the affected accounts are
Cash account and Furniture account.
Cash account is an asset account and has
decreased. As per rule if asset decreases the
affected account is credited, so cash account is
credited. (PV ON RHS)
Furniture is also an asset and it has increased.
As per rule if asset increases the affected
account is debited. Thus furniture account is
debited. (ON LHS)
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Rohan Purchased Furniture for Rs.80,000
12. CASH
Decrease (Rs 80000)
[–] Credit
Increase in Asset is debited and
decrease in Asset is credited
14
FUR
Increase (80000)
[+] Debit
13. M/s Indian Machinery
Mart [Liability]
Increase
Rs 60000
[+] Credit
Machinery {Assets}
Increase (60000)
[+] Debit
Increase in Liabilities is credited and decrease
in Liabilities is debited
Increase in Asset is debited, and decrease in
Asset is credited
15
(Purchased Machinery on Credit for Rs.60,000
14. Cash of Rs.50,000 introduced in business as Capital
Capital Account
Increase Rs 50000
[+] Credit
Cash (Assets)
Increase Rs 50000
[+] Debit
16
Increase in Capital is credited and decrease in
Capital is debited
Increase in Asset is debited, and decrease in
Asset is credited
15. Salary Account
[Expenses]
Increase Rs 60000
[+] Debit
Cash (Assets)
Decrease Rs 60000
[+] Credit
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(Paid Rs.60000 to the employees as Salary)
Increase in Expenses/ Losses is debited and
decrease in Expenses/ Losses is credited
Increase in Asset is debited, and decrease in
Asset is credited
16. Interest Account
(Revenue)
Increase Rs 4000
[+] Credit
Cash (Assets)
Increase Rs 4000
[+] Debit
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(Received interest for the month Rs.4000)
Increase in revenue/ gains is credited and
decrease in revenue/ gain is debited
Increase in Asset is debited, and decrease in
Asset is credited
18. ANY EVENT THAT EFFECTS ACCOUNTING RECORDS HAS
TWO ASPECTS.
ACCOUNTING SYSTEMS MUST RECORD BOTH THESE
ASPECTS.
ACCOUNTING IS THEREFORE RIGHTLY CALLED DOUBLE
ENTRY SYS.
MOST DISTINCTIVE & FUNDAMENTAL PRINCIPLE.
PROVIDE CONCEPTUAL BASIS FOR ACCOUNTING
MECHANICS
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19. THE LEFT-HAND SIDE OF EACH ACCOUNT IS UTILISED
FOR THE RECORDING OF TRANSACTION IN RESPECT OF
WHICH BENEFIT HAS BEEN RECEIVED BY THAT
ACCOUNT.
THE RIGHT- HAND SIDE IS UTILISED FOR RECORDING
TRANSACTIONS IN RESPECT OF WHICH BENEFIT HAS
BEEN IMPARTED BY THAT ACCOUNT.
COMPLETE RECORD OF ANY TRANSACTION INCLUDES
DEBITING OF ONE ACCOUNT AND CREDITING OF
ANOTHER ACCOUNT.
THIS TWO FOLD RECORDING OF TRANSACTION HAS
GIVEN RISE TO THE TERM “DOUBLE ENTRY”.
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21. ASSETS
CASH (H)
CASH (B)
SY DR
LIABILITIES
NOTIONAL
HEADS
SY CR
=
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22. FINANCIAL STATEMENTS ARE THE
STATEMENTS THAT ARE PREPARED AT THE END
OF THE ACCOUNTING PERIOD, WHICH IS
GENERALLY ONE YEAR.
THEY PROVIDE FINANCIAL INFORMATION
ABOUT AN ACCOUNTING ENTITY.
THEY INCL BALANCE SHEET, PROFIT & LOSS
ACCOUNT, CASH FLOW STATEMENT , ETC.
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23. 1. Ascertaining the results of business operations
2. Ascertaining the financial position e.g. Balance
Sheet
3. Source of information
4. Helps in managerial decision making
5. An index of solvency (The ability of a company to
meet its long-term financial obligations)
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24. THE PROFIT & LOSS ACCOUNT
REFLECTS THE PERFORMANCE OF
A FIRM OVER A PERIOD OF TIME
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25. (A) - Knowledge of the net profit or net loss
(B) - Net profit of one year can be compared
with net profits of previous year or years.
(C) - Different expenses which are taken to Profit
& Loss A/c in one year can be compared with
the amounts incurred in previous year or
years.
This helps in ascertaining the need of applying
control over such expenses.
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26. In financial accounting, a balance sheet or statement of
financial position is a summary of a person's or org's
balances.
It shows the financial position of a firm at a given point
of time.
Assets, liabilities and ownership equity are listed as of a
specific date.
A balance sheet is often described as a snapshot of a
company's financial condition.
A company balance sheet has three parts: assets,
liabilities and ownership equity.
The assets are usually listed first and are followed by
the liabilities.
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27. Assets
Current assets
Cash and cash equivalents
Inventories
Accounts receivable
Prepaid expenses
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28. Assets
Long-term assets
Property, plant and equipment
Investment property, such as real estate held for
investment purposes
Intangible assets
Financial assets Investments accounted for using
the equity method
Biological assets
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29. Liabilities
Accounts payable
Provisions for warranties or court decisions
Financial liabilities (excluding provisions and
accounts payable), such as promissory notes
and corporate bonds
Liabilities and assets for current tax
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30. Liabilities
Deferred tax liabilities and deferred tax assets
Minority interest in equity
Issued capital and reserves attributable to
equity holders of the Parent company
Unearned revenue
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31. Cash flow Statement traces the various sources
which bring in cash such as cash from operating
activities, sale of current and fixed assets, issue
of share capital and debentures etc.
Applications which cause outflow of cash such
as loss from operations, purchase of current and
fixed assets, redemption of debentures,
preference shares and other long-term debt for
cash.
In short, a cash flow statement shows the cash
receipts and disbursements during a certain
period.
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